This audit report contains the Annual Financial Statement of the Federal Prison Industries, Inc. (FPI) for the fiscal years (FY) ended September 30, 2006, and September 30, 2005. Under the direction of the Office of the Inspector General (OIG), PricewaterhouseCoopers LLP (PwC) performed the audit, which resulted in an unqualified opinion on the FY 2006 financial statements. An unqualified opinion means the financial statements present fairly, in all material respects, the financial position and results of the operating activity of the entity. The FPI also received an unqualified opinion on its FY 2005 financial statements (OIG Report No. 06-18).

For the second year, no issues were identified in the Report of Independent Auditors on Internal Control. Also, in their Report on Compliance and Other Matters, the auditors reported no issues, including no instances of noncompliance with the requirements of the Federal Financial Management Improvement Act (FFMIA) of 1996.

The OIG reviewed PwC’s reports and related documentation and made necessary inquiries of its representatives. Our review, as differentiated from an audit in accordance with U.S. generally accepted government auditing standards, was not intended to enable us to express, and we do not express, an opinion on FPI’s financial statements, conclusions about the effectiveness of internal control, conclusions on whether FPI’s financial management systems substantially complied with FFMIA, or conclusions on compliance with laws and regulations. PwC is responsible for the attached auditors’ reports dated October 27, 2006, and the conclusions expressed in the reports. However, our review disclosed no instances where PwC did not comply, in all material respects, with generally accepted government auditing standards.